Disruptive potential of real estatecrowdfunding in the real estate

project finance industryA literature review

Nicolle Montgomery, Graham Squires and Iqbal SyedSchool of Economics and Finance, Massey University, Auckland, New Zealand

AbstractPurpose – The purpose of this paper is to review the literature on the Disruptive Innovation Theory and onthe disruptive potential of real estate crowdfunding (RECF) in the real estate finance industry, assessingwhether RECF constitutes a potentially disruptive innovation to the real estate finance industry. Based on areview and synthesis of the literature, the paper advances an initial conceptual framework of corecharacteristics of disruptive innovations. This framework is used to examine the disruptive potential of RECFin the real estate finance industry.Design/methodology/approach – This paper is a systematic literature review that synthesizes andanalyzes relevant extant research articles retrieved from online databases.Findings – Findings suggest that according to the theory of disruptive innovations, and the corecharacteristics of disruptive innovations, RECF is a potentially disruptive innovation to the real estate financeindustry. RECF seems to generally align with the classic characteristics of disruptive innovations. A morecomprehensive and systematic analysis, supported by empirical data, is necessary to evaluate whether and towhat extent RECF constitutes a disruptive innovation to the real estate finance industry.Research limitations/implications – This study has only captured and reviewed articles published andavailable in database searches. RECF is a nascent field that has recently begun receiving academic attention.Practical implications – Real estate plays an integral part in the economy, and the way it is financed hasbecome an increasingly important issue following the Global Financial Crisis. This paper provides usefulinsights for assessing whether and to what extent RECF may be disruptive to the real estate finance industry.Social implications – RECF may potentially improve accessibility and affordability of real estate finance,thereby helping to address the problem of shortage of real estate project finance.Originality/value –While RECF is portrayed in the academic and gray literature as a disruptive innovation,its disruptive potential is yet to be determined. This paper advances an initial conceptual framework ofdefining characteristics of disruptive innovations. This framework is used to evaluate RECF as a potentiallydisruptive innovation in the real estate project finance industry. This study forms a basis for future empiricalexamination of the disruptive potential of RECF in the real estate finance industry.Keywords Disruptive technology, Disruptive innovations, Disruptive Innovation Theory,Property crowdfunding, Real estate crowdfunding, DisruptionsPaper type Literature review

IntroductionReal estate crowdfunding (RECF) is a rapidly growing, technology-enabled innovationwhich has generated significant discussion in the real estate finance industry globally.A prominent theme in these discussions, and in most of the extant literature on RECF, is thepotential of this innovation to disrupt the real estate project finance industry and thetraditional financing institutions in the industry (Maarbani, 2015). RECF is a processwhereby real estate developers and project owners raise and aggregate small amountsof capital from a wide group of investors through the use of technology, specificallyinternet-based platforms (Maarbani, 2015). In its 2015 crowdfunding report, Massolution, aleading crowdfunding research firm, estimated that the size of the RECF market is $2.6bn,having grown from $1bn in 2014. Moreover, the volume of real estate finance raised at RECFplatforms is forecast to grow exponentially over the next five years and reach $250bn by2024 (Massolution, 2015). The growth of RECF represents a potential threat to traditional

Property ManagementVol. 36 No. 5, 2018

pp. 597-619© Emerald Publishing Limited

0263-7472DOI 10.1108/PM-04-2018-0032

Received 23 April 2018Revised 11 June 2018Accepted 5 July 2018

The current issue and full text archive of this journal is available on Emerald Insight at:www.emeraldinsight.com/0263-7472.htm

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real estate finance (Cannon, 2014; Chapnick, 2014; IPF Research, 2016; Maarbani, 2015;Mian, 2016). The purported disruptive potential of RECF has not been scrutinized using thetheory of disruptive innovations (Bower and Christensen, 1995; Christensen, 1997;Christensen and Raynor, 2003). The theory of disruptive innovations offers a framework forevaluating the disruptiveness of innovations, and has been used in numerous industries thathave encountered disruptive innovations. This paper reviews the core characteristicsdisruptive innovations, as advanced by the theory, and the extant literature which arguesthat RECF constitutes a disruptive innovation to the real estate finance industry.By connecting the literature on the disruptive innovations theory with that of disruptivepotential of RECF, the paper aims to assess whether and to what extent RECF may bepotentially disruptive to the real estate finance industry.

Crowdfunding and RECF arose against the backdrop of the 2007–2008 GlobalFinancial Crisis (GFC) and the subsequent bank failures, illiquidity in the bank sector,restricted lending, high-risk aversion toward real estate and a move toward low-risksecured lending (Baldwin, 2017; IPF Research, 2016; Parr, 2017). The GFC resulted in afinancing gap which is particularly impacting small- and medium-sized enterprises(SMEs) across all sectors of the economy, including the real estate development industry(Pekmezovic and Walker, 2016). Small- and medium-sized real estate developers have beenfacing difficulties in accessing finance from banks (Goins, 2014). Although some of thelending restrictions introduced in the wake of the GFC have been eased over the past fewyears, small-sized real estate developers continue to face challenges in accessing realestate finance (Anderson, 2016; Baldwin, 2017; IPF Research, 2016; Milton, 2010).Alternative sources of financing are starting to fill in the finance gap left by banks(Cohen, 2017). Small start-ups typically lack access to finance, and crowdfundingis now considered a new, alternative finance tool (Leboeuf and Schwienbacher, 2018;Walthoff-Borm et al., 2018). Crowdfunding as an alternative means of finance is growingrapidly globally (Block, Colombo, Cumming and Vismara, 2018; Lehner et al., 2015;Bruton et al., 2015; Mitra, 2012). Some small-scale real estate developers and projectowners looking for real estate finance are already starting to use RECF, financing theirprojects via RECF platforms (Cannon, 2014; Vogel and Moll, 2014).

The passage of relevant laws for crowdfunding in the USA, the UK, Australia andNew Zealand, among others, provided a basis for rapid growth of RECF. These laws havemade RECF a viable option for financing the construction, renovation and ownership ofboth small- and large-scale real estate projects (Baker, 2016; Vogel and Moll, 2014). In theUSA, the Jumpstart Our Business Start-up Act (The JOBS Act) was passed in 2012,introducing the term “crowdfunding” into securities law (Cohen, 2016). In June 2016, Title III(Crowdfunding) of The JOBS Act was authorized, allowing non-accredited investors (i.e. thepublic) to participate fully in crowdfunding. In the UK, crowdfunding platformsare regulated by the Financial Conduct Authority, and the regulatory policy for thecrowdfunding industry was introduced in 2014. In Australia, the Corporations Amendment(Crowd-sourced Funding) Act 2017 provides a legislative framework for crowd-sourcedfunding. In New Zealand, crowdfunding and peer-to-peer lending was legalized under theFinancial Markets Conduct Act 2013 (Murray, 2015). Mamonov and Malaga (2018) arguedthat changes in regulations have spurred the growth of crowdfunding, and “the financialindustry is seeing rapid introduction of new technologies and new business models that arechallenging established practices” (p. 65).

RECF is already in the real estate financing market; it is already being used as analternative, non-bank finance source (Cannon, 2014; Esbaitah, 2016; Mian, 2016; Vogel andMoll, 2014). Patch of Land (2018), a platform founded in 2012, has so far crowdfunded 986real estate projects, with a total of loans funded of $443m, and an average crowdfunded loansize of $449,000. Realty Mogul (2018), a RECF platform established in 2012, has so far

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crowdfunded 350 real estate projects, with a total of loans crowdfunded of $338m. RealtyShares (2018), founded in 2013, has so far financed more than 1,000 real estate projects, withthe total of loans crowdfunded of $700m. From both the academic and professional fields,the view that RECF will in some way impact or disrupt the real estate finance industry isprevalent. In the academic field, Cannon (2014) argued that RECF may bring aboutdisruption and disintermediation to the real estate finance industry. Vogel and Moll (2014)contended that RECF is a disruptive technology set to address the “inefficiencies” oftraditional real estate finance. Baum (2017) argued that the real estate industry hasremained unchanged for many decades, and is set to be impacted by technologicalinnovations. In the professional field, numerous industry analysts and commentators arguethat real estate finance industry is set to have an “uberization” or “Airbnb-ization” of its own(e.g. Amar, 2016; Chapnick, 2014; Lakhani et al., 2015).

It appears RECF is altering the way real estate is financed (Cannon, 2014). In using RECFplatforms, real estate developers cut out the intermediates (namely, the banks) and go directto source of capital – people, savers and lenders who traditionally put their savings in thebank (Maarbani, 2015; Vogel and Moll, 2014). Hollas (2013) argued that people who save andinvest in the traditional finance system (e.g. banks and venture capital firms) are dissatisfiedwith the high costs, high fees, less choice and long investment periods they face.Crowdfunding is now an alternative channel for savers to deploy their capital. Ordinarypeople now have direct access to hard assets of real estate, through RECF platforms.Historically, the asset class of real estate has been restricted to institutions and wealthyindividuals (Baum, 2015). Rather than approaching banks to seek real estate finance, thetechnology-enabled innovation of RECF enables real estate developers to raise capital froma group of investors, using the internet, in an automated, efficient way online (Cannon, 2014;Maarbani, 2015). RECF gives real estate developers access to a significantly larger pool ofnew capital, namely, the crowd, who lend money to developers and project owners, or takeequity stakes as joint venture partners in real estate projects (Maarbani, 2015). Hollas (2013)considered that the rapid growth in debt crowdfunding may potentially threaten“traditional finance” – the traditional banking system. It is against this backdrop that itbecomes essential to examine whether RECF constitutes a disruptive innovation to the realestate finance industry.

The rest of the paper is organized as follows. In the following section, we describethe research method and process used to identify relevant articles to review. Next, theDisruptive Innovation Theory (DIT) is presented. The core characteristics of disruptiveinnovations, and the process of disruption, as outlined in the theory, are presented. Drawingfrom the literature review and synthesis, an initial conceptual framework of corecharacteristics of disruptive innovations is advanced. This is followed by a sectionreviewing extant literature that suggests that RECF is a disruptive innovation. The paperthen presents a section with an assessment of whether RECF is a potentially disruptiveinnovation. The paper concludes by summarizing the findings of the literature review, andsuggesting opportunities for future research.

Research method: the literature review processThis paper uses a systematic review of the literature as its research method for identifyingand critically analyzing relevant articles (Tranfield et al., 2003). With the goal of carryingout a comprehensive yet focused literature review, this study draws from both academicand gray literature, and follows a specific literature search process. Two groups ofkeywords were used. The first group of keywords related to disruption: DIT, disruptiveinnovations, disruptive technologies and digital disruptions. The second group ofkeywords related to crowdfunding and RECF: crowdfunding, RECF, RECF platforms,property crowdfunding, equity-based RECF and loan-based RECF. Computer-assisted

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searches were carried out in academic databases and search engines includingABI/Inform, Business Source Premier, Emerald Insight, Google Scholar, JSTOR,ScienceDirect, Scopus and Wiley Online Library, among others. To extend the searchand identify more relevant papers, reference lists of the most relevant articles werechecked for additional articles. Further, specific searches for RECF platforms werecarried out, and their websites were visited and reviewed. This search resulted in atotal of about 60 articles. Table I presents some of the main journals in which the mainarticles were published.

Disruptive Innovation TheoryDIT was established by Christensen through a series of scholarly works based on multiplecase studies carried out in different industries and numerous contexts in the mid-1980s toearly 1990s (Bower and Christensen, 1995; Christensen, 1997; Christensen andRosenbloom, 1995). DIT is a theory for why mainstream, established, and successfulincumbent firms fail when new firms offering inferior but more modern and scalabletechnology enter the industry and market. A disruptive innovation is a new product orservice which is characteristically launched by a smaller, new entrant company with loweror dissimilar performance characteristics than what is currently offered in the market,initially targeting the low-end part of the market and then gradually improving itsperformance, until it impacts or disrupts incumbent companies in the mainstream market(Christensen and Raynor, 2003).

DIT literature offers numerous core tenets and principles of disruptive innovations,categorized into five main aspects, namely, characteristics of disruptive innovations,process of disruption, competitive impact of disruptive innovations, determinants ofresponse to disruptive innovations and response strategies to potentially disruptiveinnovations (e.g. Christensen, 1997; Bower and Christensen, 1995; Christensenand Raynor, 2003). This paper focuses on the first aspect, namely, characteristics ofdisruptive innovations.

Characteristics of disruptive innovationsKey characteristics of potentially disruptive innovations have been outlined in the literatureon DIT, as presented below.

Disruptive innovations typically introduce a new business model that is driven or enabledby technology (Christensen, 1997). Christensen et al. (2015) stated that “disrupters often

Disruptive innovation Crowdfunding Real estate crowdfunding

Journal of Product Innovation ManagementStrategic Management JournalIndustrial and Corporate ChangeInternational Journal of ManagementReviewsJournal of Electronic Commerce ResearchIndustrial Marketing ManagementAcademy of Management ExecutiveMIT Sloan Management ReviewHarvard Business ReviewJournal of MarketingMarketing ScienceIndustrial Marketing ManagementResearch-Technology Management

Corporate Finance ReviewEconomic Development JournalEntrepreneurship Theory andPracticeJournal of Corporate FinanceJournal of Economics andManagement StrategyJournal of Business VenturingSmall Business EconomicsStrategic FinanceVenture CapitalEurasian Business ReviewWilliam & Mary BusinessLaw Review

The Real Estate Finance JournalReal Estate ReviewEconomic AffairsThe Journal of Business,Entrepreneurship & the Law

Table I.List of key journalsthat have publishedarticles on disruptiveinnovation,crowdfundingand RECF

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build business models that are very different from those of incumbents” (p. 7). Disruptivetechnologies give people “direct access to products or services that had been too expensive ortoo complex” (Christensen, Johnson and Rigby, 2002, p. 24). Disruptive technologies areusually easier, simpler, cheaper and more convenient, compared to the dominant technologies,products and services in that industry (Christensen, 1997; Christensen, Verlinden andWesterman, 2002).

Disruptive technologies often possess a new, additional, non-standard performancecharacteristic, currently not available in the market (Adner, 2002; Adner and Snow, 2010;Christensen, 1997; Kostoff et al., 2004). Disruptive technologies introduce a new and differentvalue proposition to a market, compared to what has been available previously throughestablished technologies, products or services (Christensen, 1997). Disruptive innovationstypically introduce a different functionality of offer; they offer different attributes that areattractive to, and appreciated by, a very limited portion of the market or by fringe or newcustomers (Christensen, 1997; Christensen and Raynor, 2003).

At the time of entry into a market, a new disruptive innovation underperforms(compared to the primary offer in the industry) on the key features, elements or standardswhich mainstream customers in the market demand and have historically valued(Bower and Christensen, 1995; Christensen, 1997; Obal, 2013). Disruptive innovationsintroduce a product or service that has limited functionality compared to what incumbentsin the market are offering (Bower and Christensen, 1995; Christensen, 1997; Sood andTellis, 2005, 2011). While disruptive innovations initially have lower performance onattributes and criteria valued by mainstream customers, they often possess superiorperformance on alternative measurements (Danneels, 2004). They perform well on otherattributes and dimensions that are considered important to customers in low-end or fringemarkets, or new markets (Bower and Christensen, 1995; Yu and Hang, 2010; Smith, 2007).Core activities and key success factors for disruptive innovations are different from those ofincumbents in the market (Markides, 2006).

A disruptive innovation is normally lower cost, simpler and more efficient, compared tothe established products or services in the market (Christensen, 1997). Disruptiveinnovations offer products or services with a different price and cost structure, typicallymuch lower or occasionally higher than the existing products and services in the market(Bower and Christensen, 1995; Christensen, 1997). Adner (2002) argued that while disruptionis enabled by satisfactory performance, it is “enacted” by price.

Disruptive innovations possibly introduce new customers to the market by theirdifferent offer (Bower and Christensen, 1995). Disruptive innovations can create a newmarket by attracting persons who previously lacked the resources or skills to participate ina particular industry (Christensen, 1997; Christensen et al., 2015, p. 47). Disruptiveinnovations generate growth in the industries they enter, or create completely new markets(Kostoff et al., 2004).

The process of disruptionDisruptive innovation is a process; the innovation advances through different stages of thedisruptive process (Christensen, 1997). The literature suggests that the process of disruptiontypically follows three phases, namely, initial market entry, main market entry and marketdisruption (Gilbert, 2003).

In the first phase of initial market entry, the disruptive innovation is launched in amarket, in the lower-end of the existing market, or in a new and emerging market(Christensen, Johnson and Rigby, 2002; Christensen and Bower, 1996; Van Orden et al.,2011). The new entrant firms with disruptive technologies tend to engage in what isreferred to as a “low attack.” They target customers in low-end markets or new consumerswho have less demands, and can accept the product and service as it currently is

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(Sood and Tellis, 2005, 2011). Starting in a smaller market can help the new entrant todevelop its performance, size and momentum, before competing with incumbents (Husiget al., 2005; Raffi and Kampas, 2002; Sood and Tellis, 2011). When the disruptiveinnovation is initially launched, incumbents’ most valuable, mainstream customersinitially reject or dismiss the disruptive innovation because it does not meet theirperformance requirements (Schmidt and Druehl, 2008).

In the second phase of main market entry, firms offering the disruptive innovationcontinue to seek ways to address problems that hinder them from competing with productsand services offered by the mainstream, established firms (Christensen and Bower, 1996;Myers et al., 2002). As its quality improves, the disruptive innovation starts to satisfy thedemand requirements of mainstream customers (Christensen et al., 2015). The disruptersteadily improves quality and begins to move up-market.

In the third phase, the disruptive technology or innovation starts to encroachmainstream market, disrupting the incumbents (Christensen and Bower, 1996).When the disruptive innovation achieves an acceptable level of performance, and isconsidered “good enough” for the main market, customers begin to switch over to the newtechnology and innovation, and disruption occurs. A lower unit price may also facilitatethis shift in mainstream customers toward the disruptive innovation (Adner, 2002).In the later stages of the disruption, large numbers of the mainstream customers adopt theinnovation of the disrupter (Christensen et al., 2015). The standard business modeltypically changes to the new model or way of doing things introduced by the disruptor. Asthe disruptive innovation begins to attract mainstream customers, incumbents start toconsider strategies for responding (Charitou and Markides, 2003; Markides, 2006).

Specifying the characteristics of disruptive innovations offers a framework for exploringthe disruptive potential of RECF in a more organized and disciplined manner. Table IIsynthesizes and presents five core characteristics of disruptive innovations advanced in theliterature, and the authors who have mentioned these characteristics.

Conceptual framework on characteristics of disruptive innovationsBased on the review and synthesis of DIT literature, as presented above, an initialframework proposing five defining characteristics of disruptive innovations is advanced(Figure 1). As illustrated, disruptive innovations are characterized by: technology enabled ordriven, initial limited functionality (lower performance), new or different functionality(different attributes/point of difference), different price/cost structure (lower margin) and

Characteristics of disruptive innovations Authors/Key references

Disruptive innovations are technology enabledor driven

Christensen (1997), Christensen, Johnson and Rigby (2002),Christensen et al. (2015), Christensen, Verlinden andWesterman (2002)

Disruptive innovations typically have a limitedfunctionality (lower performance)

Bower and Christensen (1995), Christensen (1997),Danneels (2004), Obal (2013), Sood and Tellis (2005, 2011)

Disruptive innovations introduce a new ordifferent functionality (different attributes/point of difference)

Adner (2002), Adner and Snow (2010), Bower andChristensen (1995), Christensen (1997), Christensen andRaynor (2003), Danneels (2004), Kostoff et al. (2004),Markides (2006), Smith (2007), Yu and Hang (2010)

Disruptive innovations offer products/serviceswith a different price/cost structure(lower margin)

Adner (2002), Bower and Christensen (1995),Christensen (1997)

Disruptive innovations introduce newcustomers to the market (emerging market)

Bower and Christensen (1995), Christensen (1997), Kostoffet al. (2004)

Table II.Core characteristics ofdisruptive innovations

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introduction of new customers to the market (emerging market). This framework is used toexamine whether RECF constitutes a potentially disruptive innovation to the real estatefinance industry.

Disruptive potential of crowdfundingDefining crowdfunding and RECFCrowdfunding is funding a project through raising comparatively small contributions frommany people using the internet, without using traditional financial intermediaries (Mollick,2014). Crowdfunding involves a project owner making an open call through the internet toraise finance from a large audience or “crowd,” rather than raising finance from a smallgroup of institutional investors (Belleflamme et al., 2014). According to IPF Research (2016),“crowdfunding represents online fundraising activity using a portal to connect fundraisersand funders, creating an avenue for alternative finance” (p. 2).

RECF is a process whereby technology-enabled online platforms connect real estatedevelopers seeking finance for their projects with “the crowd” which invest in and financethe projects (Baldwin, 2017). The author stated that:

[…] in a typical real estate crowdfunding project, the developer raises external financing from“the crowd” (i.e. the general public) as opposed to raising capital from a single institutional investoror a small syndication of them (Baldwin, 2017, p. 143).

RECF platforms are real estate capital online marketplaces that use moderncommunication technologies and payment systems to connect real estate developers andproject owners with potential funders in the form of the general public (Srovnalikova andDitkus, 2016).

Characteristicsof Disruptiveinnovations

Technologyenabled or

driven

Introduce anew or

differentfunctionality

Introduce newcustomers tothe market

Typically havea limited

functionality

Offer newproducts/

services with adifferent price/cost structure

Sources: Authors, adapted from Disruptive Innovation Theory(Christensen, 1997; Bower and Christensen, 1995; Christensen andRaynor, 2003)

Figure 1.Core characteristics of

disruptiveinnovations: an initialconceptual framework

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Schweizer and Zhou (2016) also proposed a definition for RECF, as follows:

Real estate crowdfunding is a form of financing in which real estate project developers make anopen call on the internet (typically through specialized platforms) to sell a specified amount ofequity- or bond-like shares in a company or project, with the aim of attracting a large groupof (primarily accredited) investors (p. 7).

RECF is organized as an online market place or platform connecting real estate developersand project owners seeking funding, and ordinary people who provide that funding(Schweizer and Zhou, 2016).

Crowdfunding and RECF offer numerous technology-enabled benefitsThe review of the literature suggests that RECF, as a way of financing real estate projects,offers numerous technology-related advantages, including lower cost of capital astechnology reduces costs; access to a large pool of capital from many investors worldwide,efficiency and time-saving as RECF reduces time to get funding. RECF also offers moreflexibility as real estate developers can access financing across the entire stake for theirprojects, among many others, as presented below.

Lower costsCohen (2016) reported that RECF platforms “boast remarkable cost savings due to thestructure and layout of the online investment platform” (p. 21). RECF platforms disintermediate“middlemen”who traditionally connect borrowers and lenders (Schonberger and Koehler, 2017;Wharton, 2015). This leads to lower cost of capital for real estate developers and projectowners and higher risk adjusted returns for the funders. Vogel and Moll (2014) claimed thatcompared to brokers and advisors in traditional real estate financing, RECF platformwebsites charge substantially lower fees. Online borrowing through platforms offers low feesand low commissions to pay (Hollas, 2013). RECF platforms facilitate disintermediation ofagents, advisors and financial consultants, thus resulting in low fee structures (IPF Research,2016). For investors, low-threshold entry levels and low capital commitments, attractivereturns, low fees structures and the opportunity to invest direct into real estate drawmore investors to RECF platforms, thereby directing capital into real estate finance industry(IPF Research, 2016).

Chapnick (2014) contended that RECF can bring cost savings to real estate financing.The author wrote:

[…] when industries remain unchallenged for decades and even centuries, massive inefficienciesbuild-up, creating higher overhead for financial institutions, who then have to pass those costs onto their clients in the form of higher and often confusing fees. As commercial real estate platformsscale, they’re able to leverage technology not only to reduce their own overhead but also to largelydisintermediate the traditional chain of touch points in the lending process. Due to that reducedoverhead and fewer unnecessary touch points, online crowdfunding platforms and peer-to-peerlending platforms are able to offer their investors unprecedented transparency and a significantlylower fee structure (p. 1).

Streamlined processAccording to Cohen (2016), RECF platforms claim to leverage technological innovation,their online competencies and offer “streamlined” processes that enable them to get realestate projects financed significantly quicker than traditional financiers. As part offinancial technology or “fintech,” the use of software and modern information technologyin RECF makes financial transactions and processes easier, faster, more efficient and moreflexible than traditional banks (Parr, 2017). According to Parr (2017), “the use of

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technology is making connecting lenders with active real estate investment companies amuch easier task” (p. 7).

RECF platforms have simplified the entire processes of raising real estate finance, andinvesting in real estate (Mian, 2016). Through the use of technology, RECF platforms affordefficiency in the real estate investing process, thereby facilitating the flow of capital into realestate. In highlighting this simplicity and efficiency, Mian (2016) stated:

[…] real estate crowdfunding platforms have simplified the entire investment process. Everythingcan be done online, from reviewing and finding properties, to signing legal documents andtransferring funds, to monitoring the investment, significantly saving time and costs for investors.By optimizing the platform for mobile devices and focusing on a creative user interface, the onlineinvestment experience is vastly improved. Digital analytics and tools provide investors withtargeted and tailored information to help them make more informed decisions. Investors are able toinvestigate numerous potential investments at one time and determine quickly whether theopportunity fits their portfolio strategy, risk appetite, or other criteria (p. 8).

Cohen (2016) contended that unlike traditional real estate financiers, RECF platforms usetechnology to standardize the due diligence process, and reduce costs. RECF platformscreate a dedicated, private, standard page for each real estate project seeking funding, whichthe project sponsor and potential funders can assess (Cohen, 2016). On most RECFplatforms, real estate developers and project owners can access funding across the entirecapital stack for a wide range of projects and property types (Fundrise, 2014).

Social networksThe literature has shown that crowdfunding is a novel way for project owners to raise capital:using internet technology, project owners can draw upon their social network ties tosuccessfully raise the funding they need (Agrawal et al., 2011, 2015; Mollick, 2014).Project owners’ personal and/or business online networks and social capital play an importantrole during the entire crowdfunding process; they draw upon these networks as they progressthrough the different phases of their crowdfunding journey (Brown et al., 2018).

Greater transparencyThe technology behind RECF platforms helps to improve transparency in the process ofinvesting directly in real estate assets (Cohen, 2016). With online technology, informationflows easily and quickly; real time updates on projects can be provided at any time via theinternet (Cohen, 2016; Vogel and Moll, 2014). RECF platforms typically have a “data room”for each real estate project seeking funding and real estate deal, where requests forinformation can be made and responded to, and progress updates can be made(Cohen, 2016). The author stated that “RECF platforms allow an investor to achieve anunparalleled level of transparency” (Cohen, 2016, p. 24). Through using RECF platforms,real estate developers get more transparent pricing of debt (IPF Research, 2016). Providingadequate and high-quality information, as well as regular updates on the project, alsoinfluence crowd participation and crowdfunding success (Block, Hornuf and Moritz, 2018;Hornuf and Schwienbacher, 2018). A good entrepreneur–crowd relationship, characterizedby satisfactory sharing of information, influences the success of a crowdfunding campaign(Lambert et al., 2018).

Broader investor baseAccording to Vogel and Moll (2014), using technology and the internet, real estatedevelopers and project owners can reach a large population of potential investors online.Further, small minimums of investments remove the barriers to entry, enabling moreordinary people to participate in real estate finance. RECF has widened the investor base in

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real estate (IPF Research, 2016). RECF platforms are “true marketplaces for real estatecapital” (Mian, 2016, p. 7). They connect real estate developers with tens of thousands of awide range of investors from geographically diverse areas. The author stated that:

[…] technology, speed, and data have come together to reduce the inefficiencies in searching andaccessing real estate investment opportunities, while also making the pooling of investors andcapital more efficient (Mian, 2016, p. 7).

The internet diminishes numerous distance‐related frictions and facilitates crossinggeographic barriers in an easy, convenient, quick, efficient, cost-effective manner;it enables project owners to draw upon their online social capital to raise finance froma geographically dispersed “crowd” (Agrawal et al., 2015; Gunther et al., 2018).Cohen’s (2016) study analyzes the functionality of RECF platforms, and reports that, withtechnological innovation as a catalyst for RECF platforms, the platforms have opened thereal estate industry to a potentially significant increase in investment capital directed intoreal estate. Numerous scholars posit that quality of projects is important; it influencesthe success of crowdfunding projects (e.g. Belleflamme et al., 2014; Mollick, 2014;Parker, 2014). Crowdfunding projects that indicate a higher quality level are more likely toget the funding they seek.

Enhanced user experienceAn industry report by PricewaterhouseCoopers states that RECF is a progression oftraditional real estate syndication, with one key difference – the use of technology toenhance user experience (Maarbani, 2015). RECF platforms use technology to provideunique user experience, and a set of advantages, namely, efficiency, cost-effectiveness, scale,information and convenience, which traditional real estate financing or syndication cannot(Maarbani, 2015). Crowdfunding exists owing to internet technology (Pekmezovic andWalker, 2016).

Self-directed toolsHollas (2013) contended that crowdfunding platforms offer efficiency gains because theyprovide project owners and funders with self-directed tools which streamline the processesof seeking financing and investing, making them more efficient. Self-directed tools on onlineplatforms reduce or eliminate the need for brokers, advisors, among other trainedprofessional (Hollas, 2013). The author reported that both finance seekers and investorshave concerns with higher fees, less choice and inefficient processes that often exist intraditional finance (Hollas, 2013). Leveraging the technology, RECF platforms are user-friendly, simple, coherent and easy to use, and they present targeted and uncomplicatedinformation for deal-specific investments (Cohen, 2016). These platforms allow accreditedand unaccredited ordinary investors autonomy to carry out their analysis and riskevaluation, and make real estate investments, thus facilitating the flow of new capital intoreal estate (Cohen, 2016). The author stated that “one of the most interesting developments ishow crowdfunding platforms, aided by The JOBS Act of 2012, can disrupt the industry”(Cohen, 2016, p. 4). On RECF platforms, investors can select the real estate projectsthey want to finance, and build their own portfolios, giving them control and autonomy(IPF Research, 2016).

RECF platforms performing intermediary functions similar to banksA reading of the literature suggests that RECF platforms perform intermediary functionssomewhat similar to those performed by banks. Cohen’s (2016) study analyzes thefunctionality of RECF platforms and reports that the platforms not only help real estate

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developers and project owners raise capital from the crowd, they also perform numerousintermediary and brokerage functions. He stated that:

[…] crowdfunding platforms specifically are involved in the financing of real estate by poolingtogether capital, and also by indirectly performing some of the brokerage and appraisal dutiesthrough the process of curating the marketing and analyses of deals (Cohen, 2016, p. 5).

RECF platforms typically serve as an intermediary service for real estate project sponsors(Cohen, 2016). RECF platforms can serve as both an intermediary (broker), or as aprincipal in the investment (Cohen, 2016). Some RECF platforms have internal staff whoperform property level due diligence functions, and investment committees who performvetting functions and approve investments (Vogel and Moll, 2014). Other platformshave developed their own underwriting models, and carry out financial stress testing(Vogel and Moll, 2014).

After analyzing the functionality of RECF platforms, Cohen (2016) stated that “the typesof activities involved here closely resemble traditional real estate shops” (p. 19). Similarly totraditional real estate financiers, it appears RECF platforms perform investment dealanalysis and screening in order to choose deals that suit the platforms investment thesis andcan be posted on the platform, and to verify that the investment deal and return profilematch (Cohen, 2016). Some platforms also perform the function of due diligence analysis ofprojects before they are posted on the platform. They also market the real estate projectsseeking funding on their platforms, and undertake post-transaction management andreporting functions after the project is financed (Cohen, 2016). However, the rolesof crowdfunding platforms as intermediaries are not yet fully understood because oflimited academic research, narratives and legal cases (Lehner et al., 2015). Cumming andZhang (2018) investigated whether crowdfunding platforms are active and effectiveintermediaries who carry out the standard due diligence activities typically required infinancial transactions, and reported that this depends on the platforms having sufficientresources. Platforms that offer more services tend to attract more higher-quality andpotentially successful crowdfunding campaigns (Rossi and Vismara, 2018).

Crowdfunding potentially poses a threat to the traditional real estate finance industryChapnick (2014) made the case that the real estate industry has not gone through change,and is poised for technological transformation. The author stated that:

[…] the commercial property business model meets all the criteria of an industry ripe for disruption.It’s one of the oldest industries in the world, it is run in a way that hasn’t been significantly updatedor altered in a century and it’s bloated with fees and large players who are too big to adapt toshifting trends in technology. It was only natural that commercial real estate would become thenext big industry that needed disintermediation, similar to the way Uber tackled transportationand Airbnb shook up hospitality (Chapnick, 2014, p. 1).

RECF is currently dominated by small-scale property developing firms, and SME projectsponsors (IPF Research, 2016). However, some leading RECF platforms in the USA arestarting to attract large firms, suggesting the disruptive potential of RECF on the real estatefinance industry in the near future (IPF Research, 2016). Rand (2013) wrote that “the Internetwill do to capital what it did to media and commerce: it will completely disrupt the statusquo” (p. 1). Vogel and Moll (2014) argued that RECF, through leveraging technology and theinternet, has the potential to disrupt the real estate financing industry because thetraditional way for raising debt or equity capital is typically expensive, time-consuming,inefficient and lacks transparency. Crowdfunding, as a way of financing a project,makes it possible to “reach past intermediaries” and directly finance the project, without the“cumbersome” intermediary process (Cannon, 2014, p. 3). Crowdfunding is the intermediary

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for online capital markets, it enables project owners (particularly small businesses) tocapitalize on technology, and online social networking to raise capital from public capitalmarkets in an easy and efficient manner, and thus addressing the barriers they face inaccessing capital from traditional sources (Colgren, 2014; Kitchens and Torrence, 2012).

The growth of crowdfunding has been driven by combined factors of financialinnovation, digital innovation, digital transformation and digitalization of the financialservices industry, as well as societal and regulatory changes (Karagiannaki et al., 2017).Financial technology and crowdfunding are likely to disrupt the financial servicesecosystem (Karagiannaki et al., 2017). The merger of finance and technology, “fintech,”has led to the growth of crowdfunding, which is presenting a significant challengeto traditional banks (IPF Research, 2016). Crowdfunding with block chain technology isbeing used on some platforms, helping real estate developers to raise bridge loans orshort-term working capital, in some cases at maximum amounts of $5m per deal(Manohar et al., 2016). Langley and Leyshon (2017) scrutinized and questioned thedisruptive potential of crowdfunding and reported that crowdfunding may essentiallyreplicate, rather than disrupt, the existing funding practices. Hwang and Christensen(2008) argued that disruptive technologies can be used in struggling industries, orindustries in need of change, to facilitate delivery of more affordable goods and services.

Real estate developers and project owners can raise both debt and equity capital, for awide range of property types, from commercial to residential (Schweizer and Zhou, 2016). AsRECF has gained acceptance, real estate finance has broadened from small lending toraising common equity, preferred equity, mezzanine financing, bridge loans and debt forlarger commercial real estate, and multi-family investments (Schweizer and Zhou, 2016;Vogel and Moll, 2016). Table AI presents some RECF platforms and their country of originand focus. Table AII presents a snapshot of more detailed information about some of theRECF platforms. The table shows the property types they finance, the types of loans theyprovide and the amount of finance developers can raise on the platforms. This informationindicates that RECF is already a part of the real estate finance industry, albeit in a smallway. Finlayson (2017) stated that, “with real estate crowdfunding still in its infancy,” itseffects are rather unknown, and, at this stage, analysts can only speculate what its fullimplications will be (p. 848).

Drawbacks of RECFA review of the literature indicates that crowdfunding and RECF are considered to havenumerous drawbacks or risks, largely emanating from their format as internet-basedmechanisms and platforms for financing and investment. Kirby and Worner (2014) arguedthat the crowdfunding industry is an “infant” industry growing extremely fast, with severalrisks emanating primarily from its nature as online based.

The online aspect and nature of crowdfunding creates a sense of anonymity, raising therisk of fraud (Kirby and Worner, 2014). Anonymity means there is always an opportunity todefraud, both for the borrower and issuer parties, and lender or investors parties (Kirby andWorner, 2014). It is argued that crowdfunding platforms can draw on the power of socialnetworks to enhance accountability for project owners, just as websites such as eBay andAmazon rely on their rating systems and the reputation of the users (Vogel and Moll, 2014).However, Belt et al. (2012) put forward that given the online nature of crowdfunding, the riskof fraud and abuse is potentially significant, stating:

[…] there is a significant concern that fraud will become a widespread problem, with little incentivefor regulatory enforcement, given the small sums of money that are by definition involved incrowdfunding. Lawyers may also not be motivated to take on lawsuits alleging fraud because it isunlikely they will obtain large pay-outs and because fraud can be difficult to prove (p. 8).

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Gabison (2014) argued that while traditional institutions may be concerned about damagingtheir reputation if they engaged in fraud, the relative anonymity of the internet increases therisk of fraud in crowdfunding, and is one of the reasons that hinder project owners andpotential borrowers from using this form of finance. Gabison (2014) stated:

[…] fraud constitutes the biggest threat to crowdfunding because traditional reputational and legalenforcement methods may not work. First, fear of getting a bad reputation may not be sufficientincentive: traditional anti-fraud methods like negative reputation or goodwill may fail forcrowdfunding because the internet provides anonymity and because fund seekers do notrepeatedly fundraise (p. 12).

Research suggests that there is a lack of due diligence on platforms, possibly due toplatforms’ lack of resources or expertise (UC, 2017). Information asymmetry hinderspotential investors from getting adequate disclosure, and disclosure regulations andrequirements for online platforms are weaker than those for publicly listed firms orbrick and mortar firms (UC, 2017). Further, there is lack of transparency on disclosure ofrisks; most platforms do not fully disclose the risks until after a lender or investorhas signed up as a member on the platform (Kirby and Worner, 2014). There is a highrisk of illiquidity (Kirby and Worner, 2014). Unlike traditional or established institutions,most online crowdfunding platforms do not have secondary markets. This presents arisk for investors.

There is a high risk of default and business failures for online funded projects as there istypically lack of historical data to assess crowdfunding asset performance (UC, 2017).Platform failure is also a high risk; there are hundreds of crowdfunding platforms globally,with many that have already shut down (UC, 2017). There has been a case of a peer-to-peerlending platform that closed down, leaving no data on contracts, resulting in full investmentlosses for its members (Kirby and Worner, 2014).

There is a lack of regularity clarity; in most jurisdictions globally, there is lack of clarityon rules and oversight (UC, 2017). Securities law regarding crowdfunding and RECF is notonly still nascent and vague, but can potentially be complex, and this creates concernsamong many people. Further, there is no cross-jurisdictional harmonization in the regulationof crowdfunding (Kirby and Worner, 2014). Yet, some platforms have opened up tointernational investors, introducing cross-border complexities. Crowdfunding contracts lawenforcement across jurisdictions is unclear (Kirby and Worner, 2014). In spite of thedrawbacks and risks associated with crowdfunding, the literature suggests that RECFcrowdfunding platforms have been improving their functionality and the services they offer,as well as attempting to reduce or eliminate the risks and problems associated with onlinetransacting (e.g. Cohen, 2016).

Can RECF be considered a potential disruptive innovation?As a final discussion from the literature, to assess whether RECF can be considered apotential disruptive innovation, the core characteristics of disruptive innovations, asoutlined in the DIT literature, are applied to RECF.

Because they leverage on technology, products and services based on disruptivetechnologies are characteristically cheaper, simpler, more efficient and more convenientcompared to the established ones in the market (Christensen, 1997). The literature on RECFindicates that RECF platforms have simplified the processes of raising real estate financeand investing in real estate (Mian, 2016). Through leveraging modern informationtechnology and online competencies, RECF platforms have “streamlined” the process offinancing real estate, making it significantly quicker, easier and more efficient thantraditional financiers (Baker, 2016; Cohen, 2016). RECF can bring cost savings to real estatefinancing (Chapnick, 2014). RECF platforms facilitate disintermediation of agents, advisors

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and financial consultants, thus resulting in low fee structures (IPF Research, 2016).According to DIT, disruptive innovations often build business models that are considerablydifferent from those of incumbents (Christensen, 1997; Bower and Christensen, 1995). RECFplatforms have business models and value networks that are different from traditionalinstitutions in the real estate finance industry, such as banks.

A disruptive innovation has lower performance, compared to the product or serviceoffered by incumbents, on key criteria valued by mainstream customers (Bower andChristensen, 1995; Christensen, 1997; Obal, 2013). Disruptive innovations introduce aproduct or service that has limited functionality compared to what incumbents in themarket are offering (Bower and Christensen, 1995; Christensen, 1997). It appears RECFmeets this characteristic; it underperforms on several issues that are important tomainstream customers in the real estate finance industry. For instance, the literatureindicates that the risk of a cyber-attack is very high on crowdfunding platforms (Belt et al.,2012; Kirby and Worner, 2014). Mainstream customers in the real estate finance industryexpect and value security, and traditional real estate finance institutions are capable ofproviding it, while RECF platforms underperform on this criterion. Due to the online and“public” nature of crowdfunding platforms, they cannot provide privacy (UC, 2017).Mainstream customers in the real estate finance industry consider privacy to be important,and traditional financial institutions are able to provide privacy. The literature indicatesthat most RECF platforms are small, capable of financing only small-scale realestate projects; they handle relatively smaller value transactions and loans (Cannon, 2014;Vogel and Moll, 2014). Traditional financial institutions such as banks are able to provideconstruction and development loans for projects of all sizes, including very large-scaleprojects (Glickman, 2014). Although new legislation allowing raising capital throughcrowdfunding platforms has been enacted in different jurisdictions (Cohen, 2016),some regulatory concerns or uncertainties remain. Mainstream customers in industry valueclear regulations and minimal legislative risks, and thus prefer traditional institutions suchas banks to RECF platforms.

DIT stipulates that disruptive innovations introduce a new performance criterionnot valued by mainstream customers in the industry (Christensen, 1997). Disruptiveinnovations introduce a different functionality, or different offer with different attributesthat are attractive to, or appreciated by, a very limited portion of the market or byfringe customers (Christensen, 1997; Christensen and Raynor, 2003). It seems RECF meetsthis characteristic; it introduces a new offer. It affords real estate developers and projectowners the ability to raise finance through online platforms, from the crowd. For instance,platforms such as Realty Mogul, Patch of Land, Realty Shares, Fundrise and PeerRealty, among others, enable real estate developers and project owners to raise capital.It would seem that mainstream customers such as large real estate companies would notvalue this, as they can get the finance they need from traditional financial institutionssuch as banks. The ability to raise finance online from the crowd is not of importance tolarge real estate companies – banks and other financiers can meet their needs. The abilityto raise finance online, from the crowd, is important to, and appreciated by small- andmedium-sized real estate developers who have been facing difficulties in accessing financefrom banks (Goins, 2014; Parr, 2017), and by the less financially capable real estatedevelopers (Baum, 2017).

DIT literature states that disruptive innovations typically do not initially appealto the existing mainstream customers (Christensen, 1997). It seems RECF aligns with thischaracteristic. To date, RECF does not hold appeal to mainstream customers in the industry,namely, large real estate companies. It seems the main users of RECF platforms aresmall- and medium-sized real estate developers and project owners. One of the likely reasonswhy RECF has no appeal to mainstream customers in the industry is that it fails to meet the

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demands and expectations of the mainstream customers in the industry, as stated earlier.Christensen et al. (2015) stated that “disruptive innovations don’t catch on with mainstreamcustomers until quality catches up to their standards” (p. 5). Due to poor performance on keyperformance criteria valued by mainstream customers, to date, it appears RECF has had noappeal to the mainstream customers in the industry, namely, large real estate developers orlarge real estate companies.

DIT postulates that disruptive innovations are typically launched in the lower-end of theexisting market, or in a new and emerging market (Christensen, Johnson and Rigby, 2002;Christensen, Verlinden and Westerman, 2002; Christensen and Bower, 1996). The newentrant firms with disruptive technologies tend to engage in what is referred to as a “lowattack.” They target customers in low-end markets or new consumers who have lessdemands, and can accept the product and service as it currently is (Christensen, 1997;Christensen et al., 2003; Sood and Tellis, 2005, 2011). It would seem RECF aligns with thischaracteristic. RECF was launched in the low-end of the real estate finance market, targetingsmall-scale real estate developers and project owners who do not have stringent demands,and can accept RECF platforms as they currently are. DIT posits that mainstreamcustomers may adopt the new product or service when the quality meets their standards(Christensen, 1997; Christensen et al., 2015). It seems some the largest RECF platforms in theUSA are starting to attract a few medium- to large-sized real estate developers and firms(Cohen, 2016; Vogel and Moll, 2014). For instance, Realty Mogul and Fundrise are nowattracting institutional-grade investors.

Crowdfunding introduces new customers to the market by its different offer (Bowerand Christensen, 1995; Christensen, 1997). It seems RECF aligns with this characteristic.Crowdfunding democratizes both access to capital and participation in capital markets; itprovides “a voice to people who would otherwise never even have a chance to seekfunding, let alone provide it” (Mollick and Robb, 2016, p. 86). During the past few years,crowdfunding platforms have facilitated significant inflows of new capital (Estrin et al.,2017, 2018). Between 2011 and 2017, about £0.5bn (half a billion GBP) new capital hasbeen raised on equity crowdfunding platforms in the UK (Estrin et al., 2018). Overall,RECF appears to generally align with the classic characteristics of disruptive innovations.However, a detailed empirical analysis of RECF is required to assess in detail itsdisruptive potential.

ConclusionThe main purpose of this paper was to explore whether RECF constitutes a potentiallydisruptive innovation to the real estate finance industry. Based on the review and synthesisof the DIT literature, this paper advanced an initial conceptual framework of corecharacteristics of disruptive innovations. This framework was used to analyze thedisruptive potential of RECF. Based on this analysis, it appears RECF constitutes apotentially disruptive innovation to the real estate finance industry.

RECF platforms seem to possess the typical characteristics of potentially disruptiveinnovations. The review of the literature on DIT indicates that disruptive innovationsare typically technology enabled or driven, typically initially have a limited functionality(lower performance), introduce a new or different functionality (different attributes andpoint of difference), offer products and services with a different price and cost structure(lower margin) and may introduce new customers to the market (emerging market).RECF is technology enabled, and this affords numerous efficiency, convenience and cost-effectiveness benefits. The review of the literature suggests that RECF platforms offercost savings, lower fees, speed of execution, greater transparency, access to a broaderinvestment base, standardization of due diligence, disintermediation, simplicity andconvenience. The platforms have introduced a new aspect, the ability to finance and to

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invest in real estate, through the crowd and the internet. RECF platforms are a recententry into the real estate financial markets, currently playing a minor role in financingreal estate. Currently, RECF platforms are largely used by smaller, low-end consumers.It appears RECF platforms currently have numerous less features than those offered bytraditional financing institutions. They also have some issues such as concern with fraud,among others. However, RECF platforms are undergoing significant, constantimprovements.

Opportunities exist to build on the initial conceptual framework and the analysisthis paper offers and provide more conclusive and definitive findings regarding thedisruptive potential of RECF. A natural progression of this paper is to empirically testthe initial conceptual framework proposed, and determine more conclusively the nature,level, extent and permanence of any disruption RECF may cause to the real estatefinance industry.

As disruption is a process, currently RECF would seem to be in first phase of thedisruption process, or very early second phase. However, a comprehensive investigation ofRECF would be required to assess in detail the features, characteristics and dynamics ofRECF platforms, as well as the development of the RECF industry, in order to ascertain thephase it is in. Although numerous reports claim that crowdfunding and RECF offernumerous technology-enabled attributes that may enable them to threaten traditionalfinance, it appears to date there is no empirically backed academic investigation of theseclaims. Our comprehensive literature review-based study here enables a solid foundation forresearch to be taken forward.

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Gans, J.S. (2016), “Keep calm and manage disruption”, MIT Sloan Management Review, Vol. 57 No. 3,pp. 83-90.

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(The Appendix follows overleaf.)

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Appendix

RECF platform Website Country

Realty Mogul www.realtymogul.com/ USAPatch of Land https://patchofland.com/ USARealty Shares www.realtyshares.com/ USAPeer Realty https://peerrealty.com/ USAProdigy Network www.prodigynetwork.com/ USAFundrise https://fundrise.com/ USACrowdStreet www.crowdstreet.com USAPeer street www.peerstreet.com/ USAGround Floor www.groundfloor.us/ USAReal Crowd www.realcrowd.com/ USABlack Hawk Investments https://blackhawkcorp.com/ USACrowd Mason www.crowdmason.com/ USAMoney 360 www.money360.com/ USAAcquire Real Estatea www.acquirerealestate.com/ USAArbor Crowd www.arborcrowd.com/ USAGround Breaker http://groundbreaker.co/ USACity Vest www.cityvest.com/ USALend Invest www.lendinvest.com/ USAEarly Shares www.earlyshares.com/ USAEquity Multiple www.equitymultiple.com/ USAFund that Flip www.fundthatflip.com/ USADiversyFund https://diversyfund.com/ USAProperty Moose https://propertymoose.co.uk/ UKProperty Partner www.propertypartner.co/ UKThe House Crowd www.thehousecrowd.com/ UKCrowdLords https://crowdlords.com/ UKStride Up www.strideup.co/ UKUnmortgage www.unmortgage.com/ UKOpen Avenue www.openavenue.com/ CanadaNexus Crowd www.nexuscrowd.com/ CanadaCrowdFundUp crowdfundup.com/ AustraliaVenture Crowd www.venturecrowd.com.au/ AustraliaBrickraise www.brickraise.com AustraliaDomacom https://domacom.com.au/ AustraliaFulQrum https://nz.linkedin.com/company/

fulqrumNew Zealand

Property Mogul www.propertymogul.nz/ New ZealandThe Ownery www.theownery.co.nz/ New ZealandPledgeMe, Snowball Effectb www.pledgeme.co.nz/

www.snowballeffect.co.nz/New Zealand

CoAssets (Malaysia, Hong Kong, Singapore) www.coassets.com/ AsiaDurise (Dubai, Middle East) https://durise.com/ Middle EastBrickVest https://brickvest.com/en/ GlobalEndVest www.endvest.com/ GlobalWealthMigrate (South Africa, Australia, UK, Asia) www.wealthmigrate.com/ GlobalNotes: aAcquire Real Estate identifies, underwrites and pre-funds high-quality commercial real estateproperties; it then offers the opportunity for accredited investors to invest alongside Acquire; bgenericcrowdfunding platforms PledgeMe and Snowball Effect have indicated that they will consider shifting intoreal estate finance (Crowdfund Insider, 2016)

Table AI.Real estatecrowdfundingplatforms in differentgeographic regions

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Corresponding authorGraham Squires can be contacted at: graham.squires@gmail.com

RECF platform Website

Real estate propertytypes/eligible assettypes

Investmentstrategy ofborrowers

Type of real estatefinancing provided

Finance amountrange can borrow

Realty MogulEstablished:2012Loans funded todate: $338mNumber ofprojectsfinanced: 350+

www.realtymogul.com/

Multi-family, studenthousing, senior housing,retail (anchored andunanchored),multi-tenant office,industrial, warehouse,flex properties, self-storage facilities,manufactured homecommunities (www.realtymogul.com/equity-capital)

Value-add,core-plus,opportunistic

Both debt and equitycapital: commercialloans and equitycapital

Commercial loans(1) bridge loans:

$1MM–$25MM(2) Mezzanine

loans: $1MM–

$5MMEquity capital(1) Joint venture

equity: $1MM–$7MM

(2) Preferred equity:$1MM–$7MM

Patch of LandEstablished:2012Loans funded todate: $443mNumber ofprojectsfinanced: 986(https://patchofland.com/statistics)

https://patchofland.com/

Single familyresidential, 2–4 unitresidences,condominiums, townhomes, multi-family,apartments, mixed-usebuildings, smallcommercial,multi-family,apartments, mixed-use,single-use, office, lightindustrial/warehouse,retail (https://patchofland.com/developer-information/lending-parameters/)

Value-add,core-plus,opportunistic

Offers loans for capitalfor a fix and flip, rentalor commercialproperties: (1) Fix &Flip Loan Program, (2)Rental Loan Programand (3) CommercialLoan ProgramLoans can cover:purchase, refinance,renovation and bridge

Commercial loans:$100k–$5MM

Realty SharesEstablished:2013Loans funded todate: $700mNumber ofprojectsfinanced: 1,000+

www.realtyshares.com/

Multi-family, retail,office, industrial,self-storage, hospitality,mixed-use (www.realtyshares.com/financing/loans)

Value-add,core-plus,opportunistic

Provides “full stakecommercial real estatefinancing” (www.realtyshares.com/financing)Provides gapfinancing, senior debt,second lien loans as asubordinated financingsolutionEquity products:common equity,preferred equity,mezzanine debt (www.realtyshares.com/financing/equity)

Commercial loans,equity, gap financing:$1MM–$10MMLoan types: fixed-ratebridge loans, floating-rate bridge loans,small balancepermanent loans,triple-net constructionloans

Peer Realty https://peerrealty.com/

Multi-family, retail,office, industrial, hotel/specialty (https://peerrealty.com/sponsors)

Value-add, core,core-plus,opportunistic,develop (https://peerrealty.com/sponsors)

Equity Equity: $1MM–$5MM

Table AII.Real estate

crowdfundingplatform examples

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